New protection for struggling homeowners

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New rules are to be introduced which will ensure there are proper protections in place for vulnerable homeowners in arrears on their mortgages or people entering sale and rent back agreements.

The Financial Services Authority (FSA) has said customers in arrears must be treated fairly by firms and in particular that:

• firms must not apply a monthly arrears charge where an agreement is already in place to repay the arrears; • payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and • firms must consider all options for borrowers, with repossessions always the last resort.

A new rule has also been introduced requiring firms to record all arrears handling telephone calls and to keep the records for three years.

More stringent regulations have also been introduced to help protect so called 'sale and rent back' customers who sell their home at a discounted price because they can not keep up their mortgage repayments, but remain living in it as a rent-paying tenant for a fixed period of time.

The new rules include:

• a ban on exploitative advertising and high-pressure sales techniques; • a 14-day cooling-off period to give consumers more time to make decisions on sale and rent back; • a ban on cold calling and the dropping of promotional leaflets through letter boxes; • security of tenure for customers for a minimum of five years; • measures to ensure all risks are clearly signposted to the customer, via FSA literature and during the sales process.

"With cases of vulnerable homeowners evicted from their homes after six to twelve months after selling to unscrupulous sale and rent back companies, tighter controls were vital," said Lesley Titcomb, FSA director responsible for the mortgage sector.

"Sale and rent back is often used by those who want to sell in a hurry to stay in their home, and so it is vital that they are better protected during what is usually a difficult period financially.

"We also think it is wrong that arrears charges should be taken from customers already in difficult circumstances and trying to get their finances back on track. Today's rules make absolutely clear the standards we expect of firms, and we have already taken tough action against some of the worst offenders."

On 31 December, phase two of the Help to Buy initiative will be withdrawn from the market. It’s certainly done wonders for the high loan-to-value sector, so we thought we’d take a closer look at the significance of the scheme and the effect it’s had.